San Francisco Vs. Chicago Apartment Rentals

The day after the 4th of July my daughter and her future roommate had the distinct pleasure of going on a field trip with me to San Francisco to look for apartment rentals prior to them starting their new jobs in the area. I’ve always thought Chicago had high housing costs and I knew that San Francisco was legendarily even more expensive (I turned down a tech job in the area around 1980 because my cost of living would have gone up 25% but my salary wouldn’t have.) but I was still blown away at how high rents were there – easily twice what a similar 2 bedroom apartment rental in Chicago would cost.

Over the course of 3 days we hit at least 16 2 bedroom apartments (that I took notes on) within the city limits but not in the central business district. About half of them had 2 bathrooms and many included parking with sizes ranging from 767 square feet to 1600 square feet and monthly rents ranging from $3250 – $4200. All were in acceptable neighborhoods (I showed them how to check on median incomes, crime reports, and sex offenders just for grins) but a couple of them entered from alleys that masqueraded as streets and the young women really freaked out when we approached one of them through a homeless encampment featuring eau de urine, a rude driver that expected us to walk through the tents on the sidewalk, and a homeless guy that started incoherently yelling at me for no apparent reason.
Here is a summary of the places we checked out along with an interactive map showing where these places were – you can click on the markers for more information. Note: I am not including the actual place they rented as I didn’t think they’d appreciate me potentially sharing that information with Web savvy sex offenders and other criminals:

The map also includes markers for 2 critical locations for my daughter: Ike’s Place and the Bi-Rite Creamery.

Ultimately they picked a place at the southern end of that grouping between Bernal Heights and Noe Valley that was a well maintained 1200 square foot vintage kinda apartment with only one bathroom, but a parking space, a really nice garden/ back yard with a grill, a piece of art that doubles as a smoker, a piano, and…we can tell…great landlords. There is a spectacular view out the bedrooms and the front windows of the surrounding hills dotted with nice homes. All this for the low, low price of $4100/ month. Thankfully Google and Facebook pay well.

Renting In San Francisco

Looking for an apartment with my daughter and her roommate was an eye opening experience. The process in San Francisco is a bit different than in Chicago. San Francisco apartments don’t stay on the market very long – maybe a week tops – and usually have multiple offers. Landlords and their agents can be and tend to be very choosy about who they rent to. For instance, both agents and landlords did not hide the fact that 2 women were far more desirable than 2 guys. The place at 1121 Alabama St. was a gorgeous rehab priced well below market that was collecting a steady stream of applications. We speculated that the couple renting it out likely underpriced it just so they could gather a pile of applications and pick tenants that they would like as neighbors.
I don’t know if the San Francisco rental market has always been this way but it certainly is now. In contrast, the Chicago rental market is far more rational.

Rent Control In San Francisco

San Francisco is a rent controlled city. Best I can tell if your building is not exempt (there are a long list of exemptions from the rent control rules) then each new lease becomes subject to the rules. The Rent Board, in their infinite wisdom in centrally planning the economy, decide what the annual allowable rent increases are according to some formula.
This results in all sorts of weird distortions – surprise, surprise! Looking at that allowable rent increase table you can see that recent increases have been around 1 – 2% per year despite the fact that home prices in San Francisco have risen by 23.9% in the last year alone. So this takes supply off the market, because there is a huge disincentive to move, and effectively raises rents for the units that are able to lease out at market rates.
We saw one place that the former tenant had lived in for 35 years at a cost of $500/ month, which had been gut rehabbed and was now on the market near $4000/ month. This highlights just one of the problems with rent control – there’s a disincentive for a landlord to properly maintain or renovate a place. In fact, you would want to be the world’s worst possible landlord for an under market unit so that you can drive the tenant out, allowing you to raise the rent to market rates.

The Economics Of Being A Landlord In San Francisco

I can’t do an exhaustive analysis of the economics of renting out apartments in San Francisco but I did do a quick calculation for the two identical units on 23rd and 24th street. Best I can tell these units would sell in the upper $400s – let’s call it $475K – and have $4000 in annual taxes with $460 in monthly assessments. They rent out at $3250/ month. That works out to about a 6.2% cap rate, which is similar to what you would get in Chicago’s non-premium neighborhoods. Actually, given the risk of finding yourself in an extended unfavorable rent controlled situation I’m not sure that would be enough for me.

I’m Jealous Of My Daughter

The bottom line after this whole adventure is that I’m pretty jealous of my daughter. She’s got a great job in a wonderful city with good weather (you can take your 4 seasons) and she will be living in a happening part of the city surrounded by many of her friends and other similar minded people her age. She will never be short of things to do and will no doubt be making lots of new friends in her new city. Ahhh…to be young again.
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